MGM Resorts International Wednesday announced that MGM Growth Properties is being acquired by VICI Properties.
The definitive agreement will entail VICI redeeming a majority of MGP operating partnership units held by MGM Resorts for $43 per unit, or approximately $4.4 billion in cash. VICI also will acquire 100% of the outstanding class A shares of MGP in a stock-for-stock transaction. This transaction values MGP at $17.2 billion, inclusive of VICI’s assumption of approximately $5.7 billion of pro rata debt.
“In 2016 we started on our journey to become asset light and this announcement, together with our recently announced Springfield and CityCenter transactions, reflects the culmination of those efforts and a major step forward in simplifying our corporate structure,” said MGM Resorts CEO and President Bill Hornbuckle in a statement. “As a result of these actions, we are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.”
Since MGM Resorts formed MGP in 2016, the companies have executed multiple transactions providing for significant cash proceeds that MGM has used to strengthen its balance sheet, return capital to shareholders and fund substantial investments in significant growth opportunities. Among these investments is the formation of BetMGM in the iGaming and sports betting market in the U.S.
The strong balance sheet also enabled MGM to emerge from issues caused by the COVID-19 pandemic in a “position of strength” when the economy began to rebound in early 2021. MGM stated that “after giving effect to the $4.4 billion in cash proceeds from this transaction, as well as the Springfield and CityCenter transactions,” it expects to have $11.6 billion of domestic operations liquidity available that will return value to shareholders and solidify its balance sheet.
“The partnership with MGP over the past five years has provided significant value to MGM Resorts as well as MGP’s other shareholders,” said MGP Chairman of the Board Paul Salem in a statement. “We are thankful to the MGP management team for all of their efforts to develop MGP into a premier gaming REIT.”
In the last year, VICI has been active in the gaming market. In late July, the Las Vegas-based real estate investment trust investing $80 million in the Great Wolf Lodge, a Perryville, Maryland, project with a $250 million resort that includes a 126,000-square-foot indoor waterpark. In 2020, VICI announced a deal to buy The Venetian and the Sands Expo and Convention Center for $4 billion.
VICI Properties also serves as landlord to 20 properties including Caesars Palace and Harrah’s in Las Vegas.
“We have always admired the exceptional quality of MGP’s real estate portfolio and are thrilled this transaction allows MGM to reach its stated objectives while enhancing value for both VICI and MGP shareholders, ” said VICI Properties CEO Ed Pitoniak in a statement.
Carlo Santarelli, a Deutsche Bank research analyst, said the deal equips MGM with more cash on its balance sheet for ROI endeavors.
“We have long believed that (mergers and acquisitions) amongst the gaming triple net REITs was a likely outcome,” Santarelli said in a statement. “We have also noted, over time, that the true driver of M&A in the sector was cost of capital, and with VICI having traded at a healthy equity premium to the group for some time, with access to inexpensive debt financing, the transaction makes both intuitive and financial sense.”
According to Jeffries Equity Analyst David Katz, VICI’s announcement of an agreement to acquire MGP “is generally positive for both VICI and MGM in our view,” he said in an email, “given that the former continues to grow accretively and the latter simplifies its structure and builds its already flush resources. In this regard, we expect a positive reaction in both stocks, pending VICI management commentary this (morning) and MGM management commentary along with 2Q21 earnings on 8/4.”
As part of the agreement, MGM Resorts will own an approximate 1% stake in the VICI operating partnership, worth approximately $370 million. The transaction is expected to close in the first half of 2022, subject to closing conditions, regulatory approvals and approval by VICI stockholders.
MGP and MGM Resorts stocks were up 7.2% and 1.6% respectively as of 2:30 pm ET on Wednesday.
